US “presssure(link to a story on SFGate)”:http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2004/01/04/EDGQV3KFI41.DTL on China to re-balance bilateral trade flows and re-value the renminbi is a depressingly familiar story. Through the 1980s we heard virtually identical complaints about Japan (and the Yen), accompanied by delusional ‘trade war’ rhetoric from the Reagan Administration and a flurry of futile and costly import barriers (on semi-conductors, steel and cars). Japan, it was claimed, had unfairly used ‘administrative guidance’ to develop its competitive strengths which it sustained by manipulating the yen-dollar exchange rate (to the immense joy of US investors). Now, China, is allegedly using communist central planning for the same purpose. ‘Non-market economies’ (NMEs) come in for a lot of pious jawboning. But even more obnoxious is the pressure placed on them to rig bilateral trade. When the economies concerned in this bilateral trade are the world’s biggest and most rapidly growing economies the rest of us should pay close attention. It is remarkable that the troublesome interference of governments in markets for light maunfactures such as textiles or automobile parts or consumer electronics is not considered such a problem when it applies to services such as the supply of physicians or to electricity supply or to the number and location of gas stations or to the supply of “defence-related” goods such as wide-bodied aircraft and jet engines, super-computers or even railway engines in countries like UK or the USA or Japan or Australia. The difference between ‘central planning’, ‘administrative guidance’ and ‘social democracy’ is all a matter of degree, it appears—very small degrees in some cases—and depends on whether you’re one of us or one of them. Still more hypocritical, however, is the implicit deal that lies behind the threat of trade barriers to NME import competition. There are no permanent provisions for such barriers in the WTO Agreements but they have a prominent, temporary, role in the China Protocol of Accession to WTO and may be invoked by any country in some circumstances as part of an anti-dumping or anti-subsidy (‘countervailing duty’)investigation. The recent US textile safeguards[⇒ related story] are sanctioned by the non-market economy provisions of the China Protocol. Like every other ‘contingent’ barrier sanctioned by WTO, these protectionist measures do their work not by ‘restoring balance’ to competition in trade but by a much more insidious impact on market behaviour. One the one hand, they encourage ‘voluntary’ export restraints. The alleged NME exporter (or alleged dumper) will often find it profitable to voluntarily comply with a quantitative restriction on exports (such as the QR’s placed on imports of Chinese garments by the US safeguards) in cases where demand in the export market is sufficiently inelastic. Japanese auto makers such as Honda and Nissan famously profited from the ‘voluntary’ restraints imposed on them in the 1980s in the US market. On the other hand, they encourage implicit preferential purchasing: the use of centrally planned purchasing power to favor supply from countries threatening to use NME barriers on imports. According to the “BBC”:http://news.bbc.co.uk/2/hi/business/3366983.stm bq. China has been attempting to counter worries about the trade gap with two recent Buy American missions to the US to purchase commodities and manufactured goods including jet aircraft and car fleets.
Peter Gallagher is student of piano and photography. He was formerly a senior trade official of the Australian government. For some years after leaving government, he consulted to international organizations, governments and business groups on trade and public policy.
He teaches graduate classes at the University of Adelaide on trade research methods and the role of firms in trade and growth and tweets trade (and other) stuff from @pwgallagher